Unit 2 - Refund of Tax.pptx, tax law notes

Tax law notes

1. Refund of Tax Refunds (Section 237 to Section 245) Refund means “to repay” or restore what was taken under the income-tax law. Refunds arise in those cases where the amount of tax paid by a person or on his behalf is greater than the amount with which he is properly chargeable for that year. Under the following circumstances the refunds may become due: The tax deducted at source is higher than the amount of tax payable, as determined on regular assessment; The amount of advance tax paid or tax paid on the basis of self-assessment exceeds the tax payable as determined on regular assessment; The tax determined and paid on the basis of regular assessment gets reduced as a result of rectification of mistake which had crept in the assessment or is reduced in appeal or revision; The same income is taxed in India and in a foreign country and the assessee is entitled to double taxation relief.

2. Every claim for refund under this section shall be made in the prescribed Form (No. 30) within one year from the last day of the assessment year to which the claim is related. If the assessee has not filed the return of income, he must file the return along with the certificate/s of tax deducted at source, challans for payment of tax, salary certificate and/or tax paid in a foreign country. When Right to Claim Refund Arises [Section 237]: Where any person satisfies the Assessing Officer that the amount of tax paid by him or on his behalf for any Assessment Year exceeds the amount with which he is properly chargeable under the Act for that year, he is entitled to a refund of the excess amount paid.

3. Case Law: The tax paid by the assessee must be accepted as it is, and in the event of the tax paid being in excess of the tax liability duly computed on the basis of return furnished and the rates applicable, the excess shall be refunded to the assessee, since its retention may offend Article 265 of the Constitution - CIT v. Shelly Products 261 ITR 367 . *Commissioner of Income tax *Article 265 of the Constitution of India provides that "no tax shall be levied or collected except by the authority of law". Who Can Claim Refund? [Section 238]: Any one of the following persons can apply for the refund: ( i ) Owner (assessee) of the income who has made excess payment;

4. (ii) Where the income of a person is included in the hands of another, only the latter is entitled to refund ; In case of death of the assessee, his legal representative; In case of insolvency of the assessee - the receiver; In case of liquidation of a company - the liquidator of the company; In case of minor or incapable assessee - the guardian of the minor or incapable; In case of non-resident assessee - his agent provided he has been duly authorized by the principal; and In case of dissolved partnership firm - any partner provided he has been duly authorized by all other ex-partners of the firm .

5. Time Limit of Income Tax Refund Claim: If the taxpayer has to make a claim of Income Tax refund, then the claim should be made in Form No. 30. However, w.e.f ., 01-09-2019, the Finance (No. 2) Act, 2019 has amended this provision to provide that the refund can be claimed only through filing of return of income within the time limit prescribed under Section 139 How to Claim Refund? [Section 239]: Refund claim should be made in Form No. 30 and verified in the prescribed manner. The refund should be claimed within one year from the last day of the assessment year.

6. In the following cases, where an otherwise valid refund claim u/s. 237 is filed by an assessee after the expiry of the time limit , the Assessing Officer, may admit the said refund claim and dispose of the same on merits and in accordance with law provided the following conditions are satisfied: It has been decided that cases where delayed claims of refund are being considered would be taken up for scrutiny. The refund has arisen as a result of excess tax deducted/collected at source and payment of advance tax and the amount of refund does not exceed 50,00,000 for one Assessment Year. The income of the assessee is not assessable in the hands of any other person under any of the provisions of the Act. No interest will be admissible on the belated refund claims. No claims under this provision will be entertained where a period of more than 6 Assessment Years has elapsed.

7. Board ( CBDT ) have also decided that in such cases: In case of refund does not exceed 10,00,000 for any Assessment Year, the Assessing officer shall obtain the prior approval of the Commissioner of Income-tax before entertaining a belated refund claim, In case of refund exceeds 10,00,000 but does not exceed 50,00,000 for any Assessment Year, the Assessing Officer shall obtain the prior approval of Chief Commissioner of Income Tax or Director General of Income Tax before entertaining a belated refund claim, and Where the refund exceeds 50,00,000, approval of the Board is required. Case Law: Board is competent to admit an application for refund even after expiry of period prescribed under Section 239, for avoiding genuine hardship in any case or class of cases. Union of India v. Azadi Bachao Andolan 263 ITR 706 .

8. Interest on Refund [Section 244A]: Interest on Refund of Income Tax: Where refund of any amount becomes due to the assessee under the Income Tax Act, he shall be entitled to receive, in addition to the said amount, simple interest on the refund calculated in the following manner: Where the refund arising to the taxpayer is out of any tax deducted/collected at source or tax paid by way of advance tax, then the taxpayer shall be entitled to interest calculated at the rate of one-half percent for every month or part of a month. Interest in such a case shall be allowed for a period commencing from the 1st day of April of the assessment year to the date on which the refund is granted if the return of income is furnished on or before the due date of filing of return specified under section 139(1) otherwise interest shall be allowed from the date of furnishing of return of income to the date on which the refund is granted. Provided that, no interest shall be payable if the amount of refund is less than 10% of the tax determined u/s 143(1) or on regular assessment .

9. Where the refund arising to the taxpayer is out of tax paid by way of self-assessment tax then the taxpayer shall be entitled to interest calculated at the rate of one-half percent for every month or part of a month. Interest in such a case shall be allowed for a period commencing from the date of furnishing of return of income or payment of tax, whichever is later, to the date on which the refund is granted. In any other case (i.e., a case in which refund is due to reasons other than those stated above), interest shall be calculated at the rate of one-half percent for every month or part of a month. Interest in such a case shall be allowed for a period commencing from the date/dates (as the case may be) of payment of the tax or penalty to the date on which the refund is granted. The expression “date of payment of tax or penalty” means the date on and from which the amount of tax or penalty specified in the notice of demand issued under section 156 is paid in excess of such demand.

10. If the proceedings resulting in the refund are delayed for reasons attributable to the assessee , whether wholly or in part, the period of the delay so attributable to him shall be excluded from the period for which interest is payable, and where any question arises as to the period to be excluded, it shall be decided by the Chief Commissioner or Commissioner whose decision thereon shall be final . 3. Where , the amount on which interest was payable has been increased or reduced , as the case may be, the interest shall be increased or reduced accordingly, and in a case where the interest is reduced, the Assessing Officer shall serve on the assessee a notice of demand in the prescribed form specifying the amount of the excess interest paid and requiring him to pay such amount ; and such notice of demand shall be deemed to be a notice under Section 156 and the provisions of this Act shall apply accordingly .

11. Judicial Decisions: ( i ) Provisions of Section 240 & 244 reveal liability to pay interest on delayed payment of refund amount but do not provide for payment of any interest on interest even though there is delay in payment of such interest to assessee- Sandvik Asia Ltd. v. CIT 280 ITR 643 (SC) . (ii) As the assessee has not received the refund of the excess advance tax, he preferred a writ petition before the Delhi High Court. When the writ petition was pending, the Department granted refund of advance tax along with interest thereon. The petitioner claimed interest on delayed payment of interest. The Delhi High Court held that the petitioner is entitled to interest on delayed payment of interest & accordingly directed the revenue to pay interest on interest- R.K . Jain & Sons vs. CIT193 CTR 659 .

12. Refund on Appeal [Section 240]: Where refund arises as a result of any order passed in appeal or other proceedings under the Act, no formal application from the assessee is required. The Assessing Officer is bound to grant refund suo motu . When Refund becomes due: Under Section 240, refund becomes due as an assessment is set aside or cancelled and an order of fresh assessment is directed to be made - The refund becomes due only on the making of such fresh assessment .

13. Set-Off of Income Tax Refund Against Outstanding Tax Dues: Section 245; – empowers the Assessing Officer to adjust Income Tax refund due to any assessee of any assessment year against any outstanding tax due of the previous years. But no adjustment of refund against tax due will be made without giving a notice to the assessee in this regard. If Assessing Officer has adjusted the refund against tax due without proper notice in this regard to the assessee , then it will be against the provisions of Section 245 and liable to be quashed.